Managing the Margin:
Economic Outlook
Iowa Events Center — Des Moines, Iowa
January 22, 2014
Lee Schulz
Assistant Professo...
Key Drivers of Pork Producer Profits
in 2014
• What will input prices and production costs be?

• How many hogs will the m...
Input Prices
and Production Costs
U.S. Corn Supply and Use

Data Source: USDA/WAOB, January 10, 2014
Data Source: USDA/WAOB, January 10, 2014
World Corn Production

Data Source: USDA/WAOB, January 10, 2014
Jan 2014 WASDE Forecast

Data Source: USDA/WAOB, January 10, 2014
Data Source: USDA/WAOB, January 10, 2014
Data Source: Barchart.com, January 16, 2013
Ethanol Operating Margins
Ethanol: $1.99/gallon
Corn: $4.23/bushel
Natural Gas: 5.50/mmBtu

Data Source: ISU CARD, January...
Corn Grind For Ethanol
12/31/2013
01/07/2014
01/14/2014

DDGS, $/ton Corn, $/bu
$210.00
$4.26
$162.50
$4.18
$162.50
$4.18

DDGS is competitive
wi...
Current Corn Futures Prices

Data Source: CME Group, January 17, 2014
Prob Mar-14
May-14
Jul-14
Sep-14
Dec-14

≥
≥
≥
≥
≥

$4.240
$4.316
$4.384
$4.432
$4.490

=
=
=
=
=

48%
55%
50%
46%
48%

Da...
U.S. Soybean Supply and Use

Data Source: USDA/WAOB, January 10, 2014
2013 = 43.3 bu/acre
-1.4% vs Linear (Actual Yield)
-2.7% vs 1979-2011 Trend
-1.7% vs 1995-2011 Trend

Data Source: USDA/WA...
World Corn Production

Data Source: USDA/WAOB, January 10, 2014
Jan 2014 WASDE
Forecast

Data Source: USDA/WAOB, January 10, 2014
Data Source: USDA/WAOB, January 10, 2014
Data Source: Barchart.com, January 17, 2013
Current Soybean Futures Prices

Data Source: CME Group, January 16, 2014
Prob Mar-14
May-14
Jul-14
Aug-14
Sep-14
Nov-14

≥
≥
≥
≥
≥
≥

$13.16
$12.97
$12.82
$12.41
$11.71
$11.25

=
=
=
=
=
=

50%
4...
Prob Mar-14
May-14
Jul-14
Aug-14
Sep-14
Oct-14
Dec-14

≥
≥
≥
≥
≥
≥
≥

$435
$421
$412
$398
$379
$354
$352

=
=
=
=
=
=
=

4...
Corn Prices vs Costs
Per Bushel Cost calculated as Per Acre Cost from
ISU Extension divided by Actual Yield per Acre

Data...
Soybean Prices vs Costs
Per Bushel Cost calculated as Per Acre Cost from
ISU Extension divided by Actual Yield per Acre

D...
Est 2012 Profits = -$12.06
Est 2013 Profits = -$8.66
Forecasted 2014 Profits = +$20.62
1950-2006 2007-2012 2013
Hogs
8%
5%
6%
Cattle
22%
16%
17%
Corn
7%
15%
15%
Soybeans
6%
10%
10%

Data Source: USDA/ERS
Hog Supplies
Data Source: USDA/NASS
Data Source: USDA/NASS
Data Source: USDA/NASS
Data Source: USDA/NASS
2013 Sow Slaughter
-2.9% (vs. 2012)
-8.9% (vs. 2007-11)

2013 Gilt Slaughter*
-1.8% (vs. 2012)
* University of Missouri

J...
Projections→

Pig
Crop
Dec-Feb 2013/14 = Farrowing x Commensurate = 28,476 to 28,789
Mar-May 2014 = Intentions
Pigs per Li...
Data Source: USDA/AMS
Data Source: USDA/AMS
Data Source: USDA/AMS
Incorrect data from APHIS

Data Source: USDA/AMS & APHIS
2013 Hog Slaughter
-0.7% (vs. 2008-12)
Sep-Dec 2013 Hog Slaughter
-1.2% (vs. 2008-12)
2014 Hog Slaughter
-1.7% (vs. 2013)
...
Data Source: USDA/AMS
2013 Pork Production
-0.3% (vs. 2012)
2.2% (vs. 2007-11)

PORK PRODUCTION
Federally Inspected, Weekly
Mil. Pounds
525

201...
2013 YTD Pork in Cold Storage
-0.8% (vs. 2012)
16.0% (vs. 2007-11)

PORK IN COLD STORAGE
Frozen and Cured, End of the Mont...
Quarterly Hog & Pork Forecasts (LMIC:01/21/2014)
Change
Year Commercial from
Quarter Slaughter Year Ago
(1,000 hd)
(%)
201...
Data Source: USDA/ERS
Pig and Hog
and Pork Prices
Data Source: USDA/AMS
Data Source: USDA/AMS
Data Source: USDA/AMS
Data Source: USDA/AMS
Data Source: USDA/AMS
Wean to Finish Crush Margin
The Crush Margin is the return remaining after accounting for the weaned pig, corn, and
soybea...
BARROW AND GILT PRICES
Iowa - So. Minnesota, Carcass Base Price, Weekly

CME
Futures Feb-14
Apr-14
May-14
Jun-14
Jul-14
Au...
Prob Feb-14
Apr-14
May-14
Jun-14
Jul-14
Aug-14
Oct-14
Dec-14

≥
≥
≥
≥
≥
≥
≥
≥

$86.175 =
$91.900 =
$99.600 =
$101.575 =
$1...
Pork Demand
Data Source: USDA/ERS
Data Source: USDA/ERS, BLS
Data Source: USDA/ERS, BLS
2013.Q1
2013.Q2
2013.Q3
2013.Q4
2013

Pounds per Capita $ per Pound
+3.1%
- 0.2%
+3.0%
+4.0%
+2.0%
+7.4%
+0.7%
+9.2%
+2.1%...
Year/Year increases in last 5 quarters (since Q4 of 2012):
2013 = +6.3%
Actual Quantity & Price Changes:
2013: 46.9 lbs (p...
International Trade
U S PORK EXPORTS
Carcass Weight, Annual
Bil. Pounds
6.0
5.0
4.0
3.0
2.0
1.0
0.0
1990

1993

1996

1999

2002

Livestock Ma...
Data Source: USDA/ERS
U.S. Pork Exports, Jan-Nov 2013
Change from a Year Ago
Country
Japan
Mexico
Canada
China (Mainland)
South Korea
Russia
Hon...
USDA’s Pork Long-Term Trade Projections (as of Feb 2013)
Importers: thousand metric
tons, carcass weight
Japan
China
Hong ...
Data Source: Policy Analysis Computing & Information Facility In Commerce
USDA’s Pork Long-Term Trade Projections (as of Feb 2013)
Exporters: thousand metric
tons, carcass weight
Brazil
Canada
Mex...
Data Source: Policy Analysis Computing & Information Facility In Commerce
Data Source: InterPig
What does this all mean for
the pork industry?
Next 12-18 months

• Profit opportunities should be on the horizon if:
– Do...
What does this all mean for
the pork industry?
Next 10 years +
• Will the industry continue to gain more production capaci...
Thank You!
More information available at:
Iowa Farm Outlook & News
www.econ.iastate.edu/ifo/

Ag Decision Maker
www.extens...
Economic Outlook
PEDv
• Pork production direction is relatively certain

• Magnitude of impact is relatively uncertain
• O...
Data Source: AASV.org
Data Source: AASV.org
Wean to Finish Pig
Pricing Simulation
50% 5-month out LHF

Average
Std Dev
Minimum
Maximum

Seller’s
Returns
$7.31
$5.68
-...
Wean to Finish Pig
Pricing Simulation
60% 5-month out LHF

Average
Std Dev
Minimum
Maximum

Seller’s
Returns
$15.12
$6.94
...
Wean to Finish Pig
Pricing Simulation
70% 5-month out LHF

Average
Std Dev
Minimum
Maximum

Seller’s
Returns
$21.58
$6.90
...
Wean to Finish Pig
Pricing Simulation
80% 5-month out LHF

Average
Std Dev
Minimum
Maximum

Seller’s
Returns
$24.69
$5.42
...
USDA Estimated Pork Primal Cutout
Primal Composite Values, Monthly
180
160
140
$/cwt

120
100
80
60
40
20
0

Loin

Butt

P...
Dr. Lee Schulz - Managing the Margin: Economic Outlook
Dr. Lee Schulz - Managing the Margin: Economic Outlook
Dr. Lee Schulz - Managing the Margin: Economic Outlook
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Dr. Lee Schulz - Managing the Margin: Economic Outlook

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Managing the Margin: Economic Outlook - Dr. Lee Schulz, Extension Livestock Economist, Iowa State University, from the 2014 Iowa Pork Congress, January 22-23, Des Moines, IA, USA.

More presentations at http://www.swinecast.com/2014-iowa-pork-congress

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Dr. Lee Schulz - Managing the Margin: Economic Outlook

  1. 1. Managing the Margin: Economic Outlook Iowa Events Center — Des Moines, Iowa January 22, 2014 Lee Schulz Assistant Professor & Extension Livestock Economist Department of Economics Iowa State University lschulz@iastate.edu (515) 294-3356 2014 Iowa Pork Congress
  2. 2. Key Drivers of Pork Producer Profits in 2014 • What will input prices and production costs be? • How many hogs will the market see and how big will they be? – Much anticipated USDA Hogs and Pigs Report(s)     What do inventories suggest? What do sows farrowing (and intentions) suggest? What do pigs saved per litter suggest? What do pig crops suggest? – What will hog slaughter be? – What will hog weights be? • How will pork demand hold up?
  3. 3. Input Prices and Production Costs
  4. 4. U.S. Corn Supply and Use Data Source: USDA/WAOB, January 10, 2014
  5. 5. Data Source: USDA/WAOB, January 10, 2014
  6. 6. World Corn Production Data Source: USDA/WAOB, January 10, 2014
  7. 7. Jan 2014 WASDE Forecast Data Source: USDA/WAOB, January 10, 2014
  8. 8. Data Source: USDA/WAOB, January 10, 2014
  9. 9. Data Source: Barchart.com, January 16, 2013
  10. 10. Ethanol Operating Margins Ethanol: $1.99/gallon Corn: $4.23/bushel Natural Gas: 5.50/mmBtu Data Source: ISU CARD, January 17, 2014
  11. 11. Corn Grind For Ethanol
  12. 12. 12/31/2013 01/07/2014 01/14/2014 DDGS, $/ton Corn, $/bu $210.00 $4.26 $162.50 $4.18 $162.50 $4.18 DDGS is competitive with corn in hog diets in this range Source: USDA/AMS
  13. 13. Current Corn Futures Prices Data Source: CME Group, January 17, 2014
  14. 14. Prob Mar-14 May-14 Jul-14 Sep-14 Dec-14 ≥ ≥ ≥ ≥ ≥ $4.240 $4.316 $4.384 $4.432 $4.490 = = = = = 48% 55% 50% 46% 48% Data Source: CME Group, January 17, 2014
  15. 15. U.S. Soybean Supply and Use Data Source: USDA/WAOB, January 10, 2014
  16. 16. 2013 = 43.3 bu/acre -1.4% vs Linear (Actual Yield) -2.7% vs 1979-2011 Trend -1.7% vs 1995-2011 Trend Data Source: USDA/WAOB, January 10, 2014
  17. 17. World Corn Production Data Source: USDA/WAOB, January 10, 2014
  18. 18. Jan 2014 WASDE Forecast Data Source: USDA/WAOB, January 10, 2014
  19. 19. Data Source: USDA/WAOB, January 10, 2014
  20. 20. Data Source: Barchart.com, January 17, 2013
  21. 21. Current Soybean Futures Prices Data Source: CME Group, January 16, 2014
  22. 22. Prob Mar-14 May-14 Jul-14 Aug-14 Sep-14 Nov-14 ≥ ≥ ≥ ≥ ≥ ≥ $13.16 $12.97 $12.82 $12.41 $11.71 $11.25 = = = = = = 50% 49% 47% 44% 47% 47% Data Source: CME Group, January 17, 2014
  23. 23. Prob Mar-14 May-14 Jul-14 Aug-14 Sep-14 Oct-14 Dec-14 ≥ ≥ ≥ ≥ ≥ ≥ ≥ $435 $421 $412 $398 $379 $354 $352 = = = = = = = 48% 44% 45% 42% 43% 47% 45% Data Source: CME Group, January 17, 2014
  24. 24. Corn Prices vs Costs Per Bushel Cost calculated as Per Acre Cost from ISU Extension divided by Actual Yield per Acre Data Source: USDA/NASS, Compiled & Analysis by Mike Duffy
  25. 25. Soybean Prices vs Costs Per Bushel Cost calculated as Per Acre Cost from ISU Extension divided by Actual Yield per Acre Data Source: USDA/NASS, Compiled & Analysis by Mike Duffy
  26. 26. Est 2012 Profits = -$12.06 Est 2013 Profits = -$8.66 Forecasted 2014 Profits = +$20.62
  27. 27. 1950-2006 2007-2012 2013 Hogs 8% 5% 6% Cattle 22% 16% 17% Corn 7% 15% 15% Soybeans 6% 10% 10% Data Source: USDA/ERS
  28. 28. Hog Supplies
  29. 29. Data Source: USDA/NASS
  30. 30. Data Source: USDA/NASS
  31. 31. Data Source: USDA/NASS
  32. 32. Data Source: USDA/NASS
  33. 33. 2013 Sow Slaughter -2.9% (vs. 2012) -8.9% (vs. 2007-11) 2013 Gilt Slaughter* -1.8% (vs. 2012) * University of Missouri July-Dec 2013 Sow Slaughter -6.5% (vs. 2012) -9.9% (vs. 2007-11) SOW SLAUGHTER Federally Inspected, Weekly Thou. Head 70 60 Avg. 200711 55 2012 65 50 45 2013 40 35 2014 T O C L JU AP R JA N 30 H-S-15 Livestock Marketing Information Center 01/17/14 Data Source: USDA-AMS & USDA-NASS
  34. 34. Projections→ Pig Crop Dec-Feb 2013/14 = Farrowing x Commensurate = 28,476 to 28,789 Mar-May 2014 = Intentions Pigs per Litter = 29,435 to 30,083 ? ? ? % Change From Year Ago +1.3% to +2.5% +1.4% to +3.6% ? PIG CROP Quarterly 0.0% to … Mil. Head 32 30 Growth % 2013/2012 Dec-Feb 1.1 Mar-May 2.2 Jun-Aug 2.0 Sep-Nov 0.1 28 26 24 22 20 18 1988 1991 1994 1997 2000 2003 2006 2009 2012 H-N-57 Livestock Marketing Information Center 12/27/13 Data Source: USDA-AMS & USDA-NASS
  35. 35. Data Source: USDA/AMS
  36. 36. Data Source: USDA/AMS
  37. 37. Data Source: USDA/AMS
  38. 38. Incorrect data from APHIS Data Source: USDA/AMS & APHIS
  39. 39. 2013 Hog Slaughter -0.7% (vs. 2008-12) Sep-Dec 2013 Hog Slaughter -1.2% (vs. 2008-12) 2014 Hog Slaughter -1.7% (vs. 2013) -4.7% (vs. 2008-12) Short of levels predicted by Sep 2013 Hogs and Pigs Report - USDA over-estimated Feb-Dec 2013/14 and Mar-May 2013 pig crop (under-estimated breeding herd liquidation in 2012:Q3) HOG SLAUGHTER Federally Inspected, Weekly Thou. Head 2,500 2,300 Avg. 200711 2,200 2012 2,400 2,100 2,000 2013 1,900 1,800 2014 T O C L JU AP R JA N 1,700 H-S-05 01/17/14 Livestock Marketing Information Center Data Source: USDA-AMS & USDA-NASS
  40. 40. Data Source: USDA/AMS
  41. 41. 2013 Pork Production -0.3% (vs. 2012) 2.2% (vs. 2007-11) PORK PRODUCTION Federally Inspected, Weekly Mil. Pounds 525 2014 YTD Pork Production 0.6% (vs. 2013) -0.8% (vs. 2012) 1.9% (vs. 2007-11) 500 Avg. 200711 475 450 2012 425 400 2013 375 350 2014 T O C L JU AP R JA N 325 M-S-19 01/06/14 Livestock Marketing Information Center Data Source: USDA-AMS & USDA-NASS
  42. 42. 2013 YTD Pork in Cold Storage -0.8% (vs. 2012) 16.0% (vs. 2007-11) PORK IN COLD STORAGE Frozen and Cured, End of the Month Mil. Pounds 750 Avg. 2007-11 700 650 2012 600 550 500 2013 450 JAN MAR MAY Livestock Marketing Information Center Data Source: USDA/NASS JUL SEP NOV M-S-10 12/23/13
  43. 43. Quarterly Hog & Pork Forecasts (LMIC:01/21/2014) Change Year Commercial from Quarter Slaughter Year Ago (1,000 hd) (%) 2012 I 28,105 2.3 II 26,661 2.1 III 27,965 2.1 IV 30,433 1.8 Year 113,163 2.1 2013 I 27,874 -0.8 II 26,778 0.4 III 27,668 -1.1 IV 29,803 -2.1 Year 112,122 -0.9 2014 I 27,829 -0.2 II 26,579 -0.7 III 27,990 1.2 IV 30,496 2.3 Year 112,894 0.7 2015 I 28,466 2.3 II 27,214 2.4 III 28,765 2.8 IV 31,468 3.2 Year 115,913 2.7 Average Change Carcass from Weight Year Ago (lbs) (%) Commercial Change Pork from Production Year Ago (mil lbs) (%) Change Per Capita from Consumption Year Ago (retail wt) (%) 209 207 201 206 206 0.2 0.6 0.3 -0.8 0.1 5,858 5,519 5,631 6,244 23,253 2.4 2.8 2.7 0.9 2.2 11.1 10.9 11.2 12.7 45.9 -2.6 -1.2 1.8 3.6 0.5 208 206 203 211 207 -0.5 -0.5 1.0 2.5 0.6 5,777 5,519 5,624 6,285 23,205 -1.4 -0.0 -0.1 0.7 -0.2 11.5 11.3 11.4 12.8 46.9 3.1 3.0 2.0 0.7 2.1 211 209 205 211 209 1.6 1.1 0.8 0.2 0.9 5,872 5,544 5,735 6,447 23,598 1.6 0.5 2.0 2.6 1.7 11.7 11.0 11.3 12.8 46.8 1.7 -2.1 -0.8 -0.2 -0.3 213 211 207 213 211 1.0 1.0 1.1 1.0 1.0 6,065 5,735 5,956 6,718 24,474 3.3 3.4 3.9 4.2 3.7 11.9 11.2 11.6 13.1 47.8 2.4 1.8 2.1 2.7 2.3
  44. 44. Data Source: USDA/ERS
  45. 45. Pig and Hog and Pork Prices
  46. 46. Data Source: USDA/AMS
  47. 47. Data Source: USDA/AMS
  48. 48. Data Source: USDA/AMS
  49. 49. Data Source: USDA/AMS
  50. 50. Data Source: USDA/AMS
  51. 51. Wean to Finish Crush Margin The Crush Margin is the return remaining after accounting for the weaned pig, corn, and soybean meal that is used to cover the other more constant expenses. The Crush Margin is based on the following assumptions: Carcass weight: 200 pounds Pig price: 50% of 5-month out LHF Corn: 10 bu/hd SBM: 150 lbs/hd Data Source: ISU Livestock Crush Margins
  52. 52. BARROW AND GILT PRICES Iowa - So. Minnesota, Carcass Base Price, Weekly CME Futures Feb-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Oct-14 Dec-14 = = = = = = = = $86.175 $91.900 $99.600 $101.575 $100.200 $97.775 $84.625 $79.850 $ Per Cwt. 110 Avg. 2008-12 100 90 2013 80 70 60 2014 T O C L JU AP R JA N 50 H-P-09 01/13/14 Livestock Marketing Information Center Data Source: USDA-AMS & USDA-NASS
  53. 53. Prob Feb-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Oct-14 Dec-14 ≥ ≥ ≥ ≥ ≥ ≥ ≥ ≥ $86.175 = $91.900 = $99.600 = $101.575 = $100.200 = $97.775 = $84.625 = $79.850 = 40% 54% 51% 45% 43% 51% 46% 51% Data Source: CME Group, January 17, 2014
  54. 54. Pork Demand
  55. 55. Data Source: USDA/ERS
  56. 56. Data Source: USDA/ERS, BLS
  57. 57. Data Source: USDA/ERS, BLS
  58. 58. 2013.Q1 2013.Q2 2013.Q3 2013.Q4 2013 Pounds per Capita $ per Pound +3.1% - 0.2% +3.0% +4.0% +2.0% +7.4% +0.7% +9.2% +2.1% +5.1% Data Source: USDA/ERS & USDL/BLS, Compiled & Analysis by Lee Schulz
  59. 59. Year/Year increases in last 5 quarters (since Q4 of 2012): 2013 = +6.3% Actual Quantity & Price Changes: 2013: 46.9 lbs (per capita consumption) — $3.64 (nominal price) $1.56 (real price) 2013: Per Capita Consumption = +2.1% (Year/Year) Real Prices = +3.6%% IF Real Prices -2.6% = 0% Demand Change Data Source: USDA/ERS & USDL/BLS, Compiled & Analysis by Lee Schulz
  60. 60. International Trade
  61. 61. U S PORK EXPORTS Carcass Weight, Annual Bil. Pounds 6.0 5.0 4.0 3.0 2.0 1.0 0.0 1990 1993 1996 1999 2002 Livestock Marketing Information Center Data Source: USDA-ERS & USDA-FAS, Compiled & Analysis by LMIC 2005 2008 2011 2014 I-N-05 01/09/14
  62. 62. Data Source: USDA/ERS
  63. 63. U.S. Pork Exports, Jan-Nov 2013 Change from a Year Ago Country Japan Mexico Canada China (Mainland) South Korea Russia Hong Kong Australia China (Taiwan) Philippines Other Countries TOTAL Carcass Weight, 1,000 lbs Percent -48,266 41,802 -3,201 -128,114 -127,294 -255,929 10,805 -35,581 8,936 11,767 109,119 -415,957 -3.8% 3.9% -0.6% -21.7% -34.4% -93.7% 8.3% -19.4% 32.9% 12.8% 26.5% -8.4% Data Source: USDA/ERS
  64. 64. USDA’s Pork Long-Term Trade Projections (as of Feb 2013) Importers: thousand metric tons, carcass weight Japan China Hong Kong South Korea Russia Mexico Central America/Caribbean Canada United States Major Importers 2011 1,254 758 432 640 971 594 100 204 2012 1,260 775 440 500 975 675 94 240 … … … … … … … … … 2022 1,364 1,220 528 552 812 913 149 297 364 367 … 426 16% 59 5,317 5,326 … 6,260 18% 934 2012 to 2022 Total Growth 8% 104 57% 445 20% 88 10% 52 -17% -163 35% 238 59% 55 24% 57 • Ability of the industry to send its products to the highest value market outlets and the comparative interest in countries worldwide to expand or adjust consumption patterns will progressively influence economic prospects Data Source: USDA/ERS
  65. 65. Data Source: Policy Analysis Computing & Information Facility In Commerce
  66. 66. USDA’s Pork Long-Term Trade Projections (as of Feb 2013) Exporters: thousand metric tons, carcass weight Brazil Canada Mexico European Union 1/ China 2011 584 1,197 86 2,204 244 2012 605 1,250 90 2,280 215 … … … … … … 2022 778 1,316 139 2,591 213 United States 2,354 2,471 … 2,828 14% 357 Major Emporters 6,669 6,911 1/ Covers EU-27. Excludes intra-EU trade … 7,864 14% 953 2012 to 2022 Total Growth 29% 173 5% 66 54% 49 14% 311 -1% -2 • Longer-term U.S. pork export gains will be determined by costs of production in the U.S. relative to competitors’ costs • Increasing demand for ―higher quality‖ by consumers worldwide to justify higher costs of consumed protein Data Source: USDA/ERS
  67. 67. Data Source: Policy Analysis Computing & Information Facility In Commerce
  68. 68. Data Source: InterPig
  69. 69. What does this all mean for the pork industry? Next 12-18 months • Profit opportunities should be on the horizon if: – Domestic demand can hold – Export demand can hold – Modest rebound in crop demand and continued moderation in input prices • Who will enjoy what share of the profits (producers, packers, retailers) less certain – Operation-level impact vs market-level impact of PEDv – Strategic opportunities for pork
  70. 70. What does this all mean for the pork industry? Next 10 years + • Will the industry continue to gain more production capacity? If so, how fast? • Don’t see large domestic demand changes • Projected increased importance of export market – Export market fragile – be prepared for disruptions – The world is diverse with marked variation in preferences  (varied importance of price, cut preference, quality, phytosanitary issues, etc.) • Changing landscape across production – Factors beyond ―base fundamentals‖ rising in importance – Views and comparative advantages will determine the ability to profit and shape the industry • Next generation has a hungry and increasingly affluent world population to feed…Let’s keep up the great work!!!
  71. 71. Thank You! More information available at: Iowa Farm Outlook & News www.econ.iastate.edu/ifo/ Ag Decision Maker www.extension.iastate.edu/agdm/ ISU Estimated Livestock Returns www.econ.iastate.edu/estimated-returns/ ISU Livestock Crush Margins www.econ.iastate.edu/margins/
  72. 72. Economic Outlook PEDv • Pork production direction is relatively certain • Magnitude of impact is relatively uncertain • Operation-level impact vs market-level impact • Inelastic demand for pigs – Contract barns are a sunk cost  If no pigs go into the barns payments still made  Buying pigs (even at high prices) to fill these barns makes sense for some in the industry — Even at a loss
  73. 73. Data Source: AASV.org
  74. 74. Data Source: AASV.org
  75. 75. Wean to Finish Pig Pricing Simulation 50% 5-month out LHF Average Std Dev Minimum Maximum Seller’s Returns $7.31 $5.68 -$6.39 $18.91 Buyer’s Returns $3.03 $16.97 -$36.67 $35.23
  76. 76. Wean to Finish Pig Pricing Simulation 60% 5-month out LHF Average Std Dev Minimum Maximum Seller’s Returns $15.12 $6.94 -$2.83 $27.43 Buyer’s Returns -$4.78 $16.11 -$44.00 $27.56
  77. 77. Wean to Finish Pig Pricing Simulation 70% 5-month out LHF Average Std Dev Minimum Maximum Seller’s Returns $21.58 $6.90 $1.71 $29.95 Buyer’s Returns -$11.24 $16.51 -$51.33 $24.74
  78. 78. Wean to Finish Pig Pricing Simulation 80% 5-month out LHF Average Std Dev Minimum Maximum Seller’s Returns $24.69 $5.42 $6.36 $30.54 Buyer’s Returns -$14.35 $17.79 -$58.65 $24.74
  79. 79. USDA Estimated Pork Primal Cutout Primal Composite Values, Monthly 180 160 140 $/cwt 120 100 80 60 40 20 0 Loin Butt Picnic Rib Ham Belly Data Source: USDA/AMS

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